Federalism, Free Markets and the Liberty To Let One's Mind Wander.
I Am Very Worried About the Fate of Liberty in the USA, Where Government is Taking people's Lives
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"Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue." -Barry Goldwater-

Wednesday, June 03, 2009

Tough times in detroit?

Then why is it that foreign car manufacturers find the US such a good place to build cars? About 6 of the 15.5 million cars built in the USA were from these foreign transplants. These foreign transplants hire US workers to assemble cars and buy parts from US manufacturers. Foreign [parts manufacturers are also building their own plants here to produce these parts that also hire local workers. So what's the problem?

Despite what you hear from Detroit, our country is a great place to build cars and trucks. The best auto companies in the world are building cars here and plan to expand production in the future.

Toyota Motor (nyse: TM - news - people ) recently opened a new plant in Texas, and is building another factory in Mississippi. The company built 1.3 million cars and trucks in North America last year, most of them in the U.S. Our country is the source of the largest share of Toyota's huge operating profits, probably close to $20 billion in its present (March 31) fiscal year.

Honda (nyse: HMC - news - people ) is building a new plant in Indiana, and its North American production was more than 1.4 million, of which it built 1 million in the U.S. Like Toyota, America is the heart of Honda's profit machine, and its American production was up from the year before. Honda has a huge car-building operation in Ohio, and it has a new factory going up in Indiana--not exactly the Sunbelt.

Nissan (nasdaq: NSANY - news - people ) has been building cars in Tennessee for years, and now has a new plant in Mississippi. BMW production in South Carolina was 150,000 last year, up nearly 40%, and the Germans just announced that they are spending $750 million to raise capacity to 240,000 a year, and will move X3 sport utility production from Europe to South Carolina. Kia of Korea is building a new plant in Georgia, its first here, not far from the new Hyundai plant in Alabama. Volkswagen (other-otc: VLKAF - news - people ) is thinking hard about building a factory in the U.S., too, and may make an announcement by summer, with the Carolinas and Georgia believed to be in the running.

Of the 15.5 million vehicles built in North American last year, most of them in the U.S., foreign manufacturers accounted for 6 million. They pay good wages and benefits but have an advantage over Detroit with younger, lower-seniority workers and smarter and lower benefit costs. I expect the foreign companies to continue to expand, not only because of their sales growth and the depreciation of our U.S. dollar against their home currencies, but because productivity and quality are high in the U.S.; the market is strong and so are profits. Of course, there are a few exceptions. Volkswagen, for example, still has trouble figuring out the U.S. market, and after years of decline, Isuzu just announced it was quitting the light-vehicle business in the U.S.

Detroit's competitors now have more than U.S. assembly plants, as they are also building design and engineering facilities and test tracks in America. These companies also buy parts from U.S. parts makers or from foreign suppliers that have put up factories in this country.

From here. Its easy to blame foreigners for our problems. Its a typical argument when the real problem is home grown and people do not want to face the hard truth and realities of today's world. Blaming foreigners is an argument founded on personal or societal weakness.

So, why an what? Is it management? Probably. Is it that foreign management is more capable than US domestic? I do not think so. The management problems that are destroying the big 3 automakers were crafted post WWII, 50 years ago (with kudos to FDR and his creation of the super-powerful unions).

The labor-management compact made then, where above market rate incomes were formulated in a world where external competiton was both non-existant and never even imagined burdened the companies with unsustainable labor costs and uncompetitive rules. Other companies and industries that were founded on similar models such as the airlines, have suffered multiple bankruptcies that have changed the management-labor relationship within the industries affected. So, they have had to adapt. However due to the special place that automobiles hold in the American psyche, automobile companies have been able to scrape by for decades.

Now, the US automobile industry has to face reality. The recent government intervention will probably prove an unbelievable fiasco where taxpayer will foot a gigantic bill just to delay the inevitable, but this is just a warning shot across the bow for Americans. The next big threat will be with state and local governments that have large, expensive and unsustainable union led labor models. they will also face unbelievable financial pressure similar to that of the Auto companies. But here, there is not a competitor coming in to deliver goods and services that are better or cheaper like in other industries. These goods and services are delivered by a monopoly government. It will be interesting to see how this is addressed.